Question

Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company uses a standard cost system for all of its products. According to the standards that have been set for the seat covers, the factory should work 2,850 hours each month to produce 1,900 sets of covers. The standard costs associated with this level of production are:
Per Set of Covers
Direct materials $42,560 $22.40
Direct labor $17,100 9.00
Variable manufacturing overhead
(based on direct labor-hours) $6,840 3.60
$ 35.00
During August, the factory worked only 2,800 direct labor-hours and produced 2,000 sets of covers. The following actual costs were recorded during the month:
Total Per Set of Covers
Direct materials (12,000 yards) $45,600 $22.80
Direct labor $18,200 9.10
Variable manufacturing overhead $7,000 3.50
$35.40
At standard, each set of covers should require 5.6 yards of material. All of the materials purchased during the month were used in production.
Required:
1. Compute the materials price and quantity variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your intermediate calculations to 2 decimal places.)
2. Compute the labor rate and efficiency variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your intermediate calculations to 2 decimal places.)
3. Compute the variable overhead rate and efficiency variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your intermediate calculations to 2 decimal places.)

Answer 1

Answer:

See below.

Explanation:

Formulas

Material Price = (Standard Price - Actual Price) * Actual Quantity

Material Quantity = (Standard Quantity - Actual Quantity) Standard Price

Labor Rate =  (Standard Rate - Actual Rate) * Actual Hours

Labor efficiency = (Standard hours - Actual hours) Standard Rate

Variable MaOv Price = (Standard Rate - Actual Rate) * Actual Quantity

Variable MaOv Efficiency

= (Standard Quantity - Actual Quantity) Standard Rate

For material and labor price and usage variances.

Standard Material Price = (22.4 / 5.6) = 4/yard

Actual Price = (22.8/6) = 3.8/yard

Actual qty = 12000 yard, Standard qty = (5.6*2000) = 11200 yards

Material Price variance = (4 - 3.8)*2000 = $400 Favorable

Material efficiency = (11200 - 12000)*(22.4/5.6) = $3200 Unfavorable

For labor rate and efficiency variance,

Standard Rate = 17100/2850 = 6/hour

Actual Rate = 18200/2800 = 6.5/hour

Actual hours = 2800, Standard hours = 1.5/seat = 1.5*2000 = 3000

Labor rate variance = (6-6.5)*2800 = $1400 Unfavorable

Labor efficiency variance = (3000-2800)*6 = $1200 Favorable

For overhead rate and efficiency variance,

Standard Rate = 6840/2850 = $2.4/hour

Actual Rate = 7000/2800 = $2.5/hour

Actual hours = 2800, Standard Hours = 3000 (1.5/seat)

Overhead rate variance = (2.4-2.5)*2800 = $280 Unfavorable

Overhead efficiency variance = (3000-2800)*2.4 = $4800 Favorable

Hope that helps.